How to Save for College While Your Kid is in High School

If you’re wondering whether there is still adequate time to invest in a college savings fund for your kid(s), you should go ahead and make the leap anyway. You don’t want to rely just on student loans to fund their education. You can invest with a robo-advisor or go through a traditional college savings plan broker, depending on your family’s college savings goals.

How to Save for College While Your Kid is in High School

Start Investing in a 529 College Savings Plan

One of the most important things a parent can do while saving up for their kids’ college education is starting a 529 college savings plan. This type of investment account does not tax your earnings when you use the money for qualified educational expenses. These expense include textbooks, student fees, room & board, as well as tuition. A 529 college savings plan is ideal compared to other investment options. Other accounts will tax you on the earnings when you make a withdrawal, regardless of what you spend that money on.

All 50 states have their own 529 college savings plans, though the Securities and Exchange Commission notes that these types of plans might not be guaranteed or backed by states, which means these accounts could lose money due to normal market fluctuations. However, if your kids are in high school, this gives you at least 1-4 years to get ahead on saving.

529 college savings plans are preferable to prepaid tuition plans. Your kids will have more options when it comes to deciding where they’ll attend college as there generally aren’t residency requirements for 529 college savings plans.

Keep up 529 Contributions Throughout Their College Years

Even if your kid is a junior or senior in high school, it’s still not too late to start investing for their college education. In fact, the relative lax restrictions on 529 plans allow you to continue contributing throughout your kid’s college career.

This might be surprising for some parents, who assume you need to finish saving for college by the time your kid enters their freshman year. It’s really advantageous to maintain your contribution amounts throughout their college years. That way, you can maximize your savings and benefits from the 529 plan.

Open a Roth IRA for Your Kids

It is never “too early” to open a Roth IRA account for your kids, and high schoolers can particularly benefit from a Roth IRA because these funds can be used to pay for college expenses, as well as some student loan repayments!

The standard annual maximum contribution for a Roth IRA is $5,500. But, parents managing their kids’ Roth IRAs are limited to the kid’s maximum annual income. This means that if your kid makes less than $5,500 per year, then that figure is the maximum contribution limit. If they make more than $5,500 annually, then the standard maximum limit applies to them as well.

Exceptions to the Roth IRA’s 10% tax penalty for early withdrawals (before age 59 ½) include higher education expenses. Of course, you’ll still want to prioritize the 529 college savings plan because college students’ financial aid eligibility is much more impacted by Roth IRA assets than 529 assets.

If you’re looking for places to keep your accounts, you might want to check out investing with Betterment or Stash Invest. Both are great options for people looking for easy ways to get started investing.

For example, community college tuition is significantly cheaper than tuition at private or public four year universities. You’ll get access to the same general education classes at a community college for a fraction of the cost.

You might also encourage your kids to try out financial literacy and investing programs like LearnVest so they can learn valuable financial lessons before they venture out into the world. This offers the added benefit of showing your kids just how much college really costs. This will also remind them to be more mindful of wasteful spending habits. And, perhaps this will change their mind about that $50,000 per year private university.

Even if there are only a few years left until your kids go off to college, there are so many options available to give you a head start on saving for their educational expenses. Rather than opting for parent-backed student loans, start saving with a 529 college savings plan. Or, consider a Roth IRA.

About Hank Coleman

Hank Coleman is the founder of Money Q&A, an Iraq combat veteran, a Dr. Pepper addict, and a self-proclaimed investing junkie. He has written extensively for many nationally known financial websites and publications about investing, retirement planning, and even how to find the best return on investment. Hank holds a Master’s Degree in Finance and a graduate certificate in personal financial planning. Email him directly at Hank[at]MoneyQandA.com.

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